Drag Along and Tag Along (Drag and Accompaniment Rights)

Drag Along and Tag Along (Drag and Accompaniment Rights)

These rights constitute a protection mechanism for shareholders. If you are about to start a business or are in the capital raising phase, get to know them! They're sure to get you out of a hurry.

Drag Along (Right to Drag)

Also known as the “right to drag”, constitutes a mechanism for the protection of the rights of majority shareholders.

It allows majority shareholders to dispose of their shareholding in the company, leading minority shareholders to sell their shares, when the purpose of the buyers is to acquire all of the outstanding shares in order to have total control of the company.

In short: It protects the majority shareholder (or the buyer) by ensuring the total sale of the company, forcing minority shareholders to sell under the same conditions.

Tag Along (Right of Accompaniment)

El “right of accompaniment” It is the mechanism that aims to protect the interests of shareholders and/or minority partners, granting them the right to dispose of their participation, when a partner and/or majority shareholder decides to sell their shareholding.

In other words, it allows the partner and/or minority shareholder to join the transaction under Same conditions than the majority shareholder who sells.

In short: It protects the minority shareholder, allowing them to demand to be included in the sale to leave the company together with the majority shareholder and at the same price.

Conditions to Exercise Them

Of course, in order to exercise them, they must be agreed in the statutes or in a Shareholder Agreement and meet different conditions to be able to apply them, such as:

• Agree on the minimum sales price.
• Mechanism of stock valuation.

For the case of Tag Along, it is also required:

• Notify shareholders of the existence of a buyer.
• Trading and buying conditions.
• Deadline for the operation.
• Disposal conditions.

It will not always be necessary to include the Drag Along And the Tag Along in the statutes, it will depend on the details of the shareholders and potential investors.

Remember that what matters most to an investor is taking care of their investment.

Do you have any questions left? In RMG LAWYERS we specialize in corporate law and are happy to support you, send an email to l.manzano@rmgsc.com